Financial Milestones: How to Make Your Dream of Home Owning a Reality in 2022

It might be possible if you’re willing to get creative, say experts

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Financial Milestones: In an ongoing series, the Financial Post explores personal finance questions associated with life’s major milestones, from marriage to retirement.

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Buying a home has never been more difficult, and this is especially true for millennials.

This generation was born in a recession, tried to enter the job market during a financial crisis, and is now trying to settle down and own a home during an economic crisis and a pandemic.

do not fool yourself. The pandemic has certainly made things worse for this 25- to 34-year-old group. Housing affordability in Canada continues to deteriorate, with home ownership now accounting for 46.5 percent of median household income, according to the National Bank of Canada.

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To put that into perspective, home ownership is recommended to take no more than 25 percent of your income. That situation is unlikely to go away soon, said Robert Hogg, chief economist at RBC Economics.

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“The prices in some places have increased year after year by 30 percent and sometimes 40 percent,” he said. “We haven’t seen the kind of wage increases that would match the rise in home prices pretty much across the board in Canada.”

The median household income for Canadians is still around $62,000, according to Statistics Canada as of 2019. However, the average household spends about $68,000. This makes owning a home seem impossible due to the high cost of carrying a mortgage, as well as all the other home bills.

It’s like falling into the wind

James McRaith

It might be possible if you’re willing to get creative, said James McRaith, portfolio manager and senior investment advisor at BMO Private Wealth.

“The first step is to prepare the family budget and this gives you a framework for what you can afford, and scrutinize the monthly inflows and outflows,” he said. “You can then start building your first batch egg… This is not easy unless you have a budget. It is like beating in the wind.”

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From there, McCreath said there are new ways young people can start putting money into a down payment. For example, side businesses are becoming increasingly popular, with some people renting parking spaces and storage units, and others finding a paid venture.

“People are really open to these side jobs,” he said. “Write a list of your strengths and where you care and believe that the possibilities are endless.”

But not everyone has the time or energy after work to start an extra party. There are also tax implications once you open a small business. Instead, Hogue recommends looking at the working-from-home economy today as an opportunity.

“Because of working from home, it allows some Canadians to consider other cities or markets to realize their dreams of owning homes,” he said. “Employers are much more flexible. Time will tell if this is a permanent way to become a homeowner, especially in expensive markets.”

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You drive until you qualify

Robert Hogg

But even though the major markets are still pricey, millennials and young adults continue to flock to them. As of 2018, about 88 percent of millennials lived and worked in urban areas, according to Pew research. This has pushed back home ownership and increased rental costs.

Housing supply remains at historic lows in nearly all markets, according to a research report by Hogue, and the pandemic has made it more difficult to enter the housing market. This is expected to continue in 2022.

With this in mind, Hogue recommends that it may be time to reconsider your options if home ownership is your dream. If you want a downtown Toronto home with a backyard, you may want to consider a detached or semi-detached home instead. Or you can keep driving until you find a market you can afford.

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“You drive until you qualify,” he said. It will involve longer distances than in the past. And some will have to accept apartments.”

If you are in dire need of a home, one way to help with your down payment is to use the savings you already have. If you’re a Canadian adding to a Registered Retirement Savings Plan (RRSP), you can use up to $35,000 as a first-time homebuyer through the Homebuyer’s Plan. You then have 15 years to pay it off, tax free.

This payment plan will also help in another area where millennials struggle: credit. Living in the house longer than previous generations means there is no evidence that you will pay your bills.

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“Young people may have car payments, student debt, all of which are compatible with the terms of the borrowing to build credit,” Hogg said. “Like any form of credit you have, credit cards and credit limits, for example, you have to stay on top of your payments. Pay them in an orderly manner and this will convey to the lenders that you can count on them.”

Of course, you may still be powerless even after creating a budget, building up credit, using the available savings and setting aside cash each month. That’s when Hough and McCreeth said it was time to visit Mom and Dad’s bank.

“If you come to them and say, ‘I’ve budgeted, I have a plan, I’m committed to that and I put aside that much savings,’ it just shows that you are well prepared and that the conversation will become a lot easier when the money is asked.”

If you don’t have enough even after performing this exercise, choosing to rent over owning a home is certainly not a failure. Many need to stay downtown to get jobs or simply enjoy the urban lifestyle. If so, staying at the place is definitely an option.

There is a cultural component to home ownership, which is very strong in North America. “If you look around the world, you won’t find a strong move toward home ownership,” Hogg said. “There might be some cultural evolution towards rent…and that’s not necessarily some kind of failure.”

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